The system of contracting between governments (federal, state, county and local) and human service organizations is fraught with problems that have significant social and economic implications across the country, based on an analysis of two national reports released today.

The Urban Institute report, Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government Contracting and Grants, provides key national and New Jerseydata on contracting practices. It compares state experiences in several areas of importance to individuals in need of services, to taxpayers, and to entire communities.

A second report released by the National Council of Nonprofits,Costs,Complexification and Crisis: Government’s Human Services Contracting “System” HurtsEveryone, provides additional detail regarding the problems non-profits are experiencing, and outlines the broader social and financial implications of these issues. It also proposes solutions that non-profits, government officials, funders, and citizens can adopt to improve services, restore value for taxpayers, and provide better benefit to communities.

According to the Urban Institute report, in 2009 nearly 33,000 human service non-profits nationwide had government contracts and grants, which provided the largest single source of revenue for 62 percent of these organizations. The nearly 200,000 federal, state, and local contracts totaled about $100 billion.

But the study confirms what many in the field have known all along – that despite the reliance by government on non-profits to deliver essential services in communities in New Jersey and nationwide, there are widespread problems that undermine the performance of these vital functions. The following were the five most commonly reported problems by human services respondents in the Urban Institute survey, and the percentage of each identified by New Jersey organizations:

Contracts that don’t cover the full costs of providing services – identified as a big problem by 53% of New Jersey respondents. The problem can take the form of match requirements – some as high as 50%; limits on reimbursable overhead or indirect costs under the contract; limits on allowable overhead costs for the organization overall.

Complex or time consuming reporting requirements that drive up costs and divert scarce resources – identified as a problem by nearly 80% of New Jersey human service respondents, including 38% who said it was a big problem.

Complex or time consuming application requirements/procedures – identified as a problem by 73% of organizations, including 21% who called it a big problem.

Late payments for providers, beyond what contract terms allow – identified as a problem by 37% of New Jersey respondents, and a big problem by 22%.

Governments that change the terms of the contract in mid-stream, such as imposing additional program requirements or expectations without providing additional resources – identified as a problem by 40% of New Jersey respondents and a big problem by 17%.

Beyond those directly affected, the National Council’s special report points to significant “ripple effects” resulting from the contracting issues. For example:

Although the economy clearly affected all organizations in the survey, those that reported contracting problems were significantly more likely than others to have taken detrimental actions, such as cutting staff, freezing or reducing salaries and benefits. This has implications both for service delivery as well as the economy generally, since New Jersey non-profits overall employ 7% of the state’s workforce.

In an era of fiscal restraint, taxpayers need to be reassured that government dollars are being spent as efficiently as possible, and not diverted into duplicative or needlessly bureaucratic requirements.

The funding constraints on human services contractors have consequences on funding for the rest of the non-profit community. The funding squeeze has created added pressures for private funding sources, some of which have diverted funds to meet human services funding emergencies, further tightening the already scarce resources available for other fields and disciplines.

“These reports confirm what non-profits and the people we serve have known since well before the recession began: the contracting system is broken and all of us – government, non-profits, and the people in our communities – are paying the price,” said Linda Czipo, executive director of the Center for Non-Profits. “Fixing the system for the benefit of the people of New Jersey must be an imperative of non-profits and policymakers at all levels of government. We stand ready to work together with all parties for responsible solutions.”

The Center for Non-Profits has outlined a number of actions that have long been recommended by non-profit advocates in New Jersey to alleviate the problems, such as:

Where appropriate, recognizing the accreditations by national entities of provider organizations in order to streamline repetitious state monitoring practices.

Establishing working groups/task forces of non-profits and government leaders across departments and divisions, reflecting strong input from the non-profit community to engage in regular dialogue and development of policies and procedures.

Recognizing one single audit or reciprocal recognition of a government-initiated audit, rather than the current, common practice of multiple, duplicative audits being performed on non-profits by separate governmental units.